Worker Cooperatives: Keep the Full Fruits of Your Labor

BROOKLYN (Workers World Today) — When we work in a capitalist business, we produce more value than we receive in wages. It’s called exploitation. A rich class lives high off the hog on the labor of a working class. Under slavery, it was slaveowners exploiting slaves. Under feudalism, it was the landowners exploiting serfs. Under capitalism, it is capitalists exploiting wage workers.

In a capitalist business, our wage as workers is fixed. But the business owners take all the net income for themselves as profits. Because most people earn their living working for the tiny class that owns most business assets, the rich get richer and the rest of us struggle to pay our bills.

The other problem with working for a capitalist is you lose your freedom. The owner – or the supervisor he hires to boss you around – makes you work as directed if you want to keep your job. You have little say in how to get your work done, even if you know your job better than your boss, which in my experience has been quite often.

In a worker cooperative, each worker receives a salary during the year and then at the end of the year a share of the cooperative’s net income – a “patronage dividend” – that is proportional to the labor each worker contributed. The workers collectively make management decisions or, in a larger business, elect the board that hires the managers.

Each worker has one vote, no matter how big or small their ownership share of the business.

Workers are required to buy a membership share, which is a sizable amount, to provide the business with working capital. Most workers buy their share over time through payroll deductions, much like union workers pay their union initiation fees when they first join a union shop. Some of the net income that is distributed as patronage dividends is credited to workers’ capital accounts. The amount depends on the business’ capital needs. The workers have the final say on the distribution of patronage dividends between credits to their capital accounts and cash payouts.

When a worker leaves the co-op, their capital account is paid out to them over a period of time, oftern five years. The phased payout is needed so new workers can afford to buy in to the cooperative as older workers retire. If all the founders retired at the same time, the business’ working capital would be depleted and might not survive. This [phased payout practice is a lesson learned from experience. Successful industrial worker cooperatives often did not survive the retirement of their founders before this phased payout of capital accounts became the usual practice.

As industrial capitalism spread in the United States in the early 1800s, independent self-employed farmers and artisans were increasingly compelled to go to work in the factories. The factories were more efficient at producing goods and undercut the prices of artisans’ products. Farmers’ trade in local markets was undermined as regional and national markets developed that were increasingly dominated by monopolistic banks, railroads, manufacturers, and merchants. The bankers took much of the farmers’ income as interest on loans for tools and seeds to plant their crops, the railroads charged exorbitant fees to get their crops to market, and the large manufacturers and merchants paid low prices for their crops.

By the 1820s, as former independent farmers and artisans were concentrating in factories, they were condemning the new economic system as “wage slavery” because the owners took most of the product of their labor and bossed these former self-employed people around. They were quite conscious of the analogy to the exploitation and slave-driving overseers of the chattel slavery system on southern plantations.

The first labor party in the world, the Working Men’s Party, was formed in 1829 in Philadelphia and New York, with a program of “cooperative production” as the alternative to the emerging capitalist wage system. As Alex Gourevitch recounts in his book From Slavery to the Cooperative Commonwealth: Labor and Republican Liberty in the Nineteenth Century, they believed that the American ideals of republican liberty required people who were independent because they owned property that enabled them to earn their living without being dependent on anyone else.

In the early American republic, liberty-securing property meant a farm or the craft tools of an artisan. These early American socialists concluded that if modern work meant working together in large factories, then the factories should be cooperatively owned and democratically managed by the workers themselves. A widely read pamphlet by a leading theoretician of the Working Men’s Party, Thomas Skidmore, was entitled The Rights of Man to Property!He argued that in large businesses, that right could only be realized through collective ownership by the workers.

The freed slaves after the civil war also condemned the wage system as “wage slavery.” They resisted efforts by southern planters and northern industrialists to get them back on the cotton, rice, and sugar plantation to work for wages from their old masters. They wanted 40 acres and a mule to take care of themselves instead of going back to work for their former slaveowners. And when it came to producing cotton, rice, and suger on the plantations that required a large labor force, the freed slaves wanted cooperative production, not wage slavery. They wanted to cooperatively own and democratically manage the plantations. Former slaves organized many such cooperative enterprises from the South Carolina Sea Islands to the Hurricane Plantation at Davis Bend, Mississippi.

The southern white landowning class retook the lands of those enterprises from the freed slaves when it overthrew the Radical Reconstruction governments by force. But black small farmers and sharecroppers, in alliance with their poor white counterparts, continued with efforts at cooperative purchasing and marketing in the Colored Farmers Alliance of the farmer-labor populist movement of the 1870s to 1890s. The black workers on the plantations worked tried to organize unions with the Knights of Labor, whose goal was to replace capitalism with cooperatives.

The cooperative movement continued as an auxiliary to the socialist movement,which was more focused on electoral politics to promote public enterprise and programs in the early 20thcentury. In deference to the racist Dixiecrat wing of the Democratic Party, President Franklin Roosevelt’s New Deal excluded farmworkers and domestic servants, who were predominantly blacks and other people of color, from the Fair Labor Standards Act and other New Deal laws and programs. In response, NAACP leader W.E.B. Dubois calledupon blacks to build a self-reliant cooperative economy and dispatched organizers like Ella Baker to develop cooperatives. When the civil rights and antiwar movement spawned a New Left, a new wave of cooperatives were spawned, from the black farmers’ Federation of Southern Cooperatives to a wave of food cooperatives organized by former student radicals across the country.

From 1978 to 1984, I worked in a construction workers cooperative which I co-founded as part of this new wave of cooperatives. We were activists in the anti-nuclear power movement. We did energy audits, insulation, and solar and wind installations – what we call “green jobs” today. We only shut down the cooperative after President Reagan removed the tax credits for solar and wind installations and our market shrunk.

Working in that cooperative was the best working experience I had as a construction worker from 1972 to 1991. When I worked for other contractors, I was exploited and bossed around. When I was the contractor, I made a lot more money, but I was overworked, working days with the crew on the job and nights doing payroll, taxes, regulatory paperwork, and bids for the next job. In the cooperative, we shared the hand and brain work in a way that gave each of us a fair share of the cooperative’s earnings without overworking any of us.

The largest worker cooperative in the United States today is Cooperative Home Care Associatesin the Bronx. Founded in 1985, it employs over 2,000 mostly black and latina women. Their incomes are higher and benefits are better than home health aides receive through capitalist agencies because the cooperative seeks to operate at cost for member benefit rather than for the profit of absentee owners. In most capitalist agencies, the workers receive as little as half of what the client pays for them. The agency takes the rest for administrative overhead and profit. Cooperative Home Care Associates should serve as a model for replacing exploitative temp agencies with worker cooperatives.

But the extent of worker cooperatives is minimal compared to some other countries. In Northern Italy’s Emilia Romagna region, worker cooperativesaccount for one-third of the region’s GDP. Two-thirds of the region’s 4.5 million residents are members of cooperatives, which are common in all sectors of the economy, from high-tech engineering and manufacturing to restaurants and day care centers. The roots of the cooperative movement in the region go back to the 1850s and its values permeated across the political spectrum from the socialist left, to the liberal center, to the Catholic right. Consequently, laws giving cooperatives favorable tax treatment and public financing have been in effect since the defeat of Italian fascism in World War II.

Another example of successful cooperative development that started under the fascism in Spain is the Mondragon Cooperative Corporation. Shut off from above-ground political organizing under dictator Francisco Franco, members of the oppressed Basque ethnic minority in the small city of Mondragon decided to organize cooperatives to develop their community economically. Starting in the mid-1950s, Mondragon steadily grew into what is now more than 100 industrial worker cooperatives and a whole system of health, pension, and educational institutions financed by the worker cooperatives. It had employees over 74,000 workers and $14 billion in revenue in 2015. The top managers cannot make more than six timesthe lowest paid worker in any Mondragon cooperative. The ratio of CEO pay to average (not lowest) wage worker in US corporations last year was 361 to 1.

98% of the businesses started by the Mondragon network have been successful. The secret to their success has been the business planning, financing, and technical assistance provided by the financial institution at the center of the system. Originally a cooperative bank called the House of People’s Labor

Mondragon, and now an educational institution endowed by the cooperatives, the business planners look for market opportunities, develop business plans, provide initial financing, train the workers and managers, and provide technical advice as the cooperative gets up and running.

To develop worker co-ops in New York, we need an institution that plays the role that the House of People’s Labor played in developing the Mondragon cooperative network. I think that role should be undertaken by a division of public state bank, similar to the public Bank of North Dakota. In addition to financing farmers, businesses, mortgages, and consumer loans, a state bank in New York should have an entrepreneurial division that plans, advises, and helps finance new worker cooperatives.

One barrier to starting to workers starting a worker cooperative is that they know their trade, but don’t have the business management knowledge to go into business. With a public agency like a state bank to aid them, such workers could be linked up with good managers so the cooperative has the range of knowledge and skills it needs.

One often overlooked opportunity for converting businesses to worker cooperatives are retiring owners. With a public agency focused on such opportunities, it should make it easy for retiring owners to sell their business to their workers.

Pending a state bank with a cooperative development division, or at least a public agency dedicated to developing cooperatives, there are worker cooperative associations that can help people start cooperatives. In New York City, there are the New York City Network of Worker Cooperatives and the Green Worker Cooperatives, which is based in the South Bronx and focused on assisting communities of immigrants and people of color.